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BR Blog: Capping early exit pension charges

Since April 2015, the over 55s have been given unfettered access to their personal pension plans.

Some have been put off from doing so by the high exit charges sometimes levied by pension providers, especially on older pension plans. From 31 March 2017, the early exit charge will be capped at 1% of the fund for those looking to benefit from the new pension freedoms.

The cap, imposed by the Financial Conduct Authority (“FCA”), applies to personal pension plans in existence on 31 March 2017. For new plans set up after that, there can be no charge on subsequent early exit. The Department for Work and Pensions (“DWP”) is considering how a cap might apply to occupational pension arrangements.

The cap applies to any one old enough to access pension freedoms - typically, age 55 but some people have an earlier protected age. As those pension plans carrying an exit charge also tend to have higher ongoing annual charges, those over age 55 now have an opportunity to transfer to a cheaper pension plan even if they do not intend to immediately access the fund itself.

Not all charges made on transfer are ‘early exit’. Adjustments made to protect the remaining investors – such as a ‘market value reduction’ on a with profit fund – are not subject to the cap. Similarly, the fee levied by a Self-Invested Personal Pension provider to cover its transfer processing costs is unaffected.